ReSA -The Review School of Accountancy Auditing Theory 

October 2022 Batch

AT Quiz 1
COVERAGE - Week 1 to 5 Lectures
 AT-01: Fundamentals of Auditing & Assurance Services
 AT-02: Introduction to Auditing
 AT-03: Financial Statements Audit Overview
 AT-04: Practice and Regulation of the Profession
 AT-05: Quality Control
 AT-06: FS Audit Process: Pre-Engagement
 AT-07: FS Audit Process: Audit Planning

1. Analytical procedures used in planning an audit should focus on:

C a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential material misstatements will be identified.
c. Enhancing the auditor’s understanding of the client’s business.
d. Assessing the adequacy of the available audit evidence.
2. A client requests to change an engagement from an audit to a review of financial statements. Which of
the following is most likely to be considered by the auditor as an acceptable reason for the change?
C a. Management is unwilling to sign the representation letter because management was not
present for the entire period covered by the engagement.
b. Management does not want the auditor to correspond with legal counsel.
c. The bank the client is obtaining a loan from has change the assurance required on the
financial statements from positive to negative assurance.
d. Audit procedures might discover that land is materially overstated.
3. A successor auditor’s inquiries of the predecessor auditor should include questions regarding:
C a. The number of engagement personnel the predecessor assigned to the engagement.
b. The assessment of the objectivity of the client’s internal audit function.
c. Communications to management and those charged with governance regarding significant
deficiencies in internal control.
d. The response rate for confirmations of accounts receivable.
4. An auditor’s engagement letter most likely would include a statement regarding:
B a. The advantages of statistical sampling.
b. The inherent limitations of an audit.
c. The billings to be paid in the form of stock of the entity.
d. The assessment of risk of material misstatement.
5. Which of the following is not an example of the application of professional skepticism?
C a. Designing additional auditing procedures to obtain more reliable evidence in support of a
particular financial statement assertion.
b. Obtaining corroboration of management’s explanations through consultation with a
specialist.
c. Inquiring of prior year engagement personnel regarding their assessment of management’s
honesty and integrity.
d. Using third-party confirmation to obtain evidence regarding management’s
representations.
6. A successor auditor should request the new client to authorize the predecessor auditor to allow a review
of the predecessor’s:
I. Engagement letter
II. Working papers

C a. Both I and II
b. I only
c. II only
d. Neither I nor II
7. Which of the following matters generally is included in auditor’s engagement letter?
A a. Management’s responsibility for the fair presentation of the financial statements.
b. The factors to be considered in setting preliminary judgments about materiality.
c. Management’s vicarious liability for violations of laws and regulations committed by its
employees.
d. The auditor’s responsibility to search for significant internal control deficiencies.

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

8. The following statements relates to planning:

I. The auditor plans the audit to be responsive to the initial assessment of the risk of material
misstatement, but should be prepared to revise the audit strategy and the audit plan based on the
results of the audit procedures.
II. A written audit plan is required.
Which statement is/are true?
C a. I only
b. II only
c. Both I and II
d. Neither I nor II
9. During the initial planning phase of an audit, the auditor most likely would:
C a. Identify specific internal control activities that are likely to prevent fraud.
b. Evaluate the reasonableness of the client’s accounting estimates.
c. Discuss the timing of the audit procedures with the client’s management.
d. Inquire of the client’s attorney as to whether any unrecorded claims are probable of
assertions.
10. In developing an overall audit strategy, an auditor should consider:
D a. Whether the allowance for sampling risk exceeds the achieved upper precision limit.
b. Findings from substantive tests performed at interim dates.
c. Whether the inquiry of the client’s attorney identifies any litigation, claims, or
assessments not disclosed in the financial statements.
d. Preliminary evaluations of materiality, audit risk, and internal control.
11. Which of the following is an element of a system of quality control under PSQC 1?
A a. Engagement performance
b. Governance
c. Information and communication
d. Resources
12. Inherent risk and control risk differ from detection risk in that they:
C a. Arise from the misapplication of auditing procedures.
b. May be assessed in either quantitative or nonquantitative terms.
c. Exist independently of the financial statement audit.
d. Can be changed at the auditor’s discretion.
13. Which of the following is not a component of a system of quality management under ISQM 1?
B a. Governance and leadership responsibilities
b. Human Resources
c. Engagement performance
d. Monitoring and remediation
14. Which of the following is/are not an assurance engagement?
I. Audit
II. Review
III. Agreed-upon-procedures
C a. I only
b. II only
c. III only
d. I and II only
15. Which of the following statements is/are true?
I. The auditor shall not agree to a change in the terms of the audit engagement where there is no
reasonable justification for doing so.
II. If the terms of the audit engagement are changed, the auditor and management shall agree on and
record the new terms of the engagement in an engagement letter or other suitable form of written
agreement.
C a. I only
b. II only
c. Both I and II
d. Neither I nor II
16. What is the objective of assurance engagement?
B a. The objective of an assurance engagement is for a professional accountant to evaluate or
measure a subject matter that is the responsibility of another party against unidentified
suitable criteria, and to express a conclusion that provides the intended user with a level of
assurance about that subject matter.

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

b. The objective of an assurance engagement is for a professional accountant to express an

opinion on whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework.
c. The objective of an assurance engagement is for a professional accountant to evaluate or
measure a subject matter that is the responsibility of another party against identified
suitable criteria, and to express a conclusion that provides the intended user with a level of
assurance about that subject matter.
d. The objective of an assurance engagement is for a professional accountant to express a
conclusion that, on the basis of procedures which do not provide all the evidence that would
be required in an assurance engagement, anything has come to the professional
accountant’s attention that causes the professional accountant to believe that the financial
statements are prepared, in all material respects, in accordance with an identified financial
reporting framework.
17. A concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that
there are no material misstatements in the financial statements taken as a whole.
A a. Reasonable assurance.
b. Absolute assurance.
c. Moderate assurance.
d. Negative assurance.
18. Which of the following best describes the relationships between an external auditor and an internal
auditor?
D a. An internal auditor is more likely to be concerned with internal accounting control, while
an external auditor shall be more interested with operations.
b. Although the internal auditors and external auditors have differences in the independence
of their positions, they nevertheless serve similar types of interests.
c. Both the internal auditor and the external auditor have the same degree of concern about
financial status and results of operations.
d. The practitioners in the two fields use basically an identical approach; however, there are
differences in the application of auditing techniques, independence, and reporting.
19. Which of the following statements concerning materiality are correct?
A a. Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements.
b. The phrase that refers to materiality in an audit report is “in accordance with an identified
financial reporting framework.”
c.Materiality depends on the size of the item or error judged in the particular circumstances
of its omission or misstatement, but it does not depend on the nature of the item.
d. Materiality is more of a qualitative characteristic that information must have (if the
information is to be useful), rather than providing a threshold or cut-off point.
20. An operational audit is designed to
B a. Determine whether the audit committee of the board of directors is effectively discharging
its responsibility to oversee management’s operations.
b. Assess the efficiency and effectiveness of management’s operating procedures.
c. Assess the presentation of management’s financial statements in accordance with Philippine
Financial Reporting Standards.
d. Determine whether management has complied with applicable laws and regulations.
21. Beejay, CPA, is the independent auditor of VGS Company. Beejay decides that the work performed by
VGS’s internal auditors may have a bearing on the nature, timing and extent of contemplated audit
procedures. He then decided to evaluate the objectivity of the internal auditors. Relative to objectivity,
Beejay should:
B a. Consider the qualifications of the internal audit staff by requesting and reviewing their
respective curriculum vitae.
b. Consider the organization level to which internal auditors report the results of their work.
c. Examine the quality of internal audit reports.
d. Request for and review the procedures on quality control which are in effect at the internal
audit department.
22. The term “error” refers to unintentional mistakes in the financial statements, and may involve the
following:
A B C D
B Mathematical or clerical mistakes in the underlying records & accounting data. Yes Yes Yes Yes
Oversight or misinterpretation of facts. No Yes Yes No
Misapplication of accounting principles. Yes Yes No No
Suppression or omission of the effects of transactions from records or documents No No No No

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

23. The practice of accountancy shall include, but is not limited to, the following:
A a. Practice of public accountancy, in commerce and industry, in the government, and in
education.
b. Practice of public accountancy, in commerce and industry, in information technology, in the
government, and in education/academe.
c. Practice of public accountancy, in commerce and industry, in legislation, in
education/academe.
d. Practice of public accountancy, in commerce and industry, in the government, and in
legislation.
24. Where the client is changing auditors, PSA requires communication between the predecessor and successor
auditors. The burden of initiating the communication rests with:
D a. The client. c. The Philippine SEC.
b. The predecessor auditor. d. The successor auditor.
25. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor
auditor regarding:
A a. Disagreements that the predecessor had with the client concerning auditing procedures and
accounting principles.
b. The predecessor’s evaluation of matters of continuing accounting significance.
c. The degree of cooperation the predecessor received concerning the inquiry of the client’s legal
counsel.
d. The predecessor’s assessments of inherent risk and judgments about materiality.
26. Reasons for discontinuing services to a client might include the following, except:
B a. Difficulty in working with client personnel.
b. Evidence indicates a client’s management has integrity.
c. Inability to negotiate an acceptable increase in the audit fee.
d. The client needs specialized services the current audit firm is unable or unwilling to provide.
27. Which of the following best describes the operational audit?
D a. It requires constant review by internal auditors of the administrative controls as they relate to
the operations of the company.
b. It concentrates on implementing financial and accounting control in a newly organized company.
c. It attempts and is designed to verify the fair presentation of a company’s results of operations.
d. It concentrates on seeking out aspects of operations in which waste would be reduced by the
introduction of control measures.
28. The primary objective of the ordinary examination of financial statements by a CPA is the expression of an
opinion on
C a. The conformity of the statements with the books of accounts.
b. The competence of management in accounting matters which is implied by whether the opinion
is qualified or not.
c. The fairness with which the financial statements present financial position, performance, and
changes in financial position.
d. The conformity of the financial statements with generally accepted auditing standards applied on
a basis consistent with that of the preceding year.
29. The best statement of the responsibility of the auditor with respect to audited financial statements is:
B a. The auditor’s responsibility for the fair presentation of financial statements is limited only up to
the date of the audit report.
b. The auditor’s responsibility is confined to his expression of opinion about the audited financial
statements.
c. The responsibility over the financial statements rests with the management and the auditor
assumes responsibility with respect to the notes of financial statements.
d. The auditor is responsible only to his qualified opinion but not for any other type of opinion.
30. This term refers to an intentional misstatement in financial statements, including the omission of an amount
or disclosure:
C a. Misstatement
b. Error
c. Fraud
d. Misinterpretation

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

31. Philippine Standards on Auditing (PSAs) should be looked upon by practitioners as:
D a. Ideals to strive for, but which are not achievable.
b. Maximum standards which denote excellent work.
c. Benchmark to be used on all audits, reviews, and compilations.
d. Minimum standards of performance which must be achieved on each audit engagement.
32. Because an examination in accordance with PSAs is influenced by the possibility of material errors, the
auditor should conduct the examination with an attitude of:
D a. Professional responsiveness.
b. Conservative advocacy.
c. Objective judgment.
d. Professional skepticism.
33. If it is probable that the judgment of a reasonable person would have been changed or influenced by the
omission or misstatement of information, then that information is considered:
C a. Significant
b. Insignificant
c. Material
d. Relevant
34. An audit has inherent limitations that affect the auditor’s ability to detect material misstatements. Which
of the following is not among the factors that result in these inherent limitations?
D a. Use of testing.
b. Inherent limitations of accounting and internal control system.
c. Evidence that is basically persuasive rather than conclusive.
d. Going concern problem of the assurance client.
35. These are the benchmarks used to evaluate or measure the subject matter including, where relevant,
benchmarks for presentation and disclosure.
D a. Assertions
b. Engagement process
c. Criteria
d. PFRS
36. Which of the following is more difficult to evaluate objectively?
A a. Efficiency and effectiveness of operations.
b. Compliance with government regulations.
c. Presentation of financial statements in accordance with GAAP.
d. All the three above are equally difficult.
37. This concept is described as follows: “the practitioner makes a critical assessment, with a questioning
mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question
the reliability of documents or representations by the responsible party”.
D a. Objectivity and integrity
b. Independence in mental attitude
c. Sufficient, appropriate evidence
d. An attitude of professional skepticism
38. S1: The President of the Philippines has the authority to remove any member of the Board of Accountancy
for negligence, incompetence, or any other just cause.
S2: Possession of an unsound mind is not a ground for the suspension or revocation of a CPA’s certificate
of registration and professional ID card.
S3: A person shall be considered to be in the professional practice of accounting if he/she is an officer in a
private enterprise, makes decisions requiring professional accounting knowledge and the position requires
that the holder should be a CPA.
C a. False, false, true
b. False, true, false
c. True, false, true
d. False, false, false
39. The following are regarded by RA No. 9298 as CPA services in public practice if offered or rendered on a
fee basis and to more than one client, except:
C a. Preparation and signing of audit reports.
b. Professional assistance on accounting procedures.

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)
c. Representation of clients before governmental agencies on tax and other matters regardless of
its relation to accounting
d. Holding out oneself as one skilled in the knowledge, science and practice of accounting and as
a qualified person to render professional services as a CPA.
40. Which of the following statements regarding “meaningful experience” is correct?
C a. In commerce and industry, meaningful experience includes significant involvement in general
accounting, budgeting, tax administration, internal auditing, liaison with the Commission on Audit,
and any other related functions.
b. In public practice, meaningful experience includes at least two years as an audit assistant and
one year as auditor-in-charge of audit engagements covering full audit functions of significant
clients.
c. In education/academe, the meaningful experience shall include teaching for at least two
semesters or three trimesters, provided the accumulated knowledge in subjects taught shall not
be less than three (3) school years.
d. In government, meaningful experience includes significant involvement in general accounting,
budgeting, tax administration, internal auditing, liaison with external auditors and representation
of employer before government agencies on tax and other matters related to accounting.
41. This body is designated to promulgate auditing standards in the Philippines:
B a. Philippine Institute of CPAs.
b. Auditing and Assurance Standards Council.
c. Association of CPAs in Public Practice.
d. Board of Accountancy.
42. S1: A sector refers to the area of practice of accountancy, such as government, commerce and
insurance, education or academe, and public practice.
S2: New syllabi are prepared whenever the Board of Accountancy deems it appropriate, provided the
period between changes shall not be more than three years.
S3: It shall be the primary duty of the Sandiganbayan and the Board of Accountancy to effectively enforce
the provisions of the Philippine Accountancy Act of 2004.
S4: In the event a candidate obtains the rating of seventy-five percent (75%) and above in at least a
majority of subjects as provided for in this Act, he/she shall receive a conditional credit for the subjects
passed, provided, that a candidate shall take an examination in the remaining subjects within two years
from the preceding examination.
D a. True, true, true, false
b. False, false, true, true
c. False, true, false, true
d. False, false, false, true
43. The Securities and Exchange Commission (SEC) has influence in setting financial reporting standards, and
is represented in the following standard-setting bodies:
C a. FRSC.
b. AASC.
c. Both a and b.
d. Neither a nor b.
44. The susceptibility of an account balance to error that could be material, assuming there are no related
controls, is referred to as:
C a. Intangible risk.
b. Detection risk.
c. Inherent risk.
d. Control risk.
45. An auditplan contains the nature, extent, and timing of procedures for gathering evidence. Regarding
audit procedures, which of the following best describes risk assessment procedures?
A a. This category of procedures is used to obtain an understanding of the entity and its environment,
including its internal control, to assess the risks of material misstatement at the financial
statement and assertion levels.
b. This category of procedures is used to test the operating effectiveness of controls in preventing
or detecting and correcting, material misstatements at the assertion level.
c. This category of procedures is used to detect material misstatements at the assertion level.
d. All of these statements describe risk assessment procedures.

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)
46. Which of the following is least likely to be included in an audit engagement letter?
A a. Identification of specific audit procedures that the auditor needs to undertake.
b. Description of any letters or reports that the auditor expects to submit to the client.
c. A reference to the inherent limitations of an audit that there is an unavoidable risk that some
material misstatements may remain undiscovered.
d. Basis on which fees are computed and any billing arrangements.
47. Which of the following is not a distinguishing feature of risk-based auditing?
C a. Identifying areas posing the highest risk of financial statement errors.
b. Analysis of internal control.
c. Collecting and evaluating evidence.
d. Concentrating audit resources in those areas presenting the highest risk of financial statement
errors.
48. The four major steps in conducting an audit are:
A. Testing internal controls
B. Audit report
C. Planning
D. Testing transactions and balances
The proper sequence in applying the above steps is:
A a. CADB
b. CDAB
c. BCDA
d. ADCB
49. Which of the following is least likely to be included in an audit engagement letter?
A a. Identification of specific audit procedures that the auditor needs to undertake. (X)
b. Description of any letters or reports that the auditor expects to submit to the client.
c. A reference to the inherent limitations of an audit that there is an unavoidable risk that some
material misstatements may remain undiscovered.
d. Basis on which fees are computed and any billing arrangements.
50. Which of the following factors will least affect the independent auditor's judgment as to the quantity,
type, and content of the working papers desirable for a particular engagement?
D a. Nature of the auditor's report.
b. Nature of the financial statements, schedules, or other information upon which the auditor is
reporting.
c. Need for supervision and review.
d. Number of personnel assigned to the audit.
51. When an independent auditor is approached to perform an audit for the first time, he or she should make
inquiries about the predecessor auditor. Inquiries are necessary because the predecessor may be able to
provide the successor with information that will assist the successor in determining whether
D a. The predecessor's work should be used.
b. The company rotates auditors.
c. In the predecessor's opinion, control risk is low.
d. The engagement should be accepted.
52. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit
engagement?
D A. a. Analysis of balance sheet accounts.
B. b. Analysis of income statement accounts.
C. c. All matters of continuing accounting significance.
d. Facts that might bear on the integrity of management.
53. With respect to the auditor's planning of a year-end examination, which of the following statements is
always true?
D D. a. An engagement should not be accepted after the fiscal year end.
E. b. An inventory count must be observed at the balance sheet date.
F. c. The client's audit committee should not be told of the specific audit procedures that will be
performed.
d. It is an acceptable practice to carry out substantial parts of the examination at interim dates.
54. The quality control standards are concerned primarily with
B G. a. Actions of individual auditors
H. b. A firm's monitoring of its practice
I. c. Disciplinary actions against individual auditors
d. Preventing legal action

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ReSA - The Review School of Accountancy AT Quiz 1
Coverage: AT – 01 to 06 (ReSA Batch 44 – October 2022 Batch)

55. What is the primary purpose of the acceptance and continuance of clients and engagements element of
quality control?
B J. a. Guarantee that firms do not associate with clients whose management lacks integrity
K. b. Provide reasonable assurance that firms do not associate with clients whose management
lacks integrity
L. c. Guarantee that firms will not be sued as a result of association with a client
d. Provide reasonable assurance that firms will not be sued as a result of association with a client
56. In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and
procedures such as
A M. a. Emphasizing independence of mental attitude in firm training programs and in supervision
and review of work
b. Prohibiting employees from owning shares of the stock of publicly traded companies
N. c. Suggesting that employees conduct their banking transactions with banks that do not
maintain accounts with client firms
d. Assigning employees who may lack independence to research positions that do not require
participation in field audit work
57. Within the context of quality control, the primary purpose of continuing professional education and
training activities is to enable a CPA firm to provide personnel within the firm with
C O. a. Technical training that assures proficiency as an auditor
b. Professional education that is required in order to perform with due professional care
P. c. Knowledge required to fulfill assigned responsibilities and to progress within the firm
d. Knowledge required to perform a peer review
58. The primary purpose of establishing quality control policies and procedures for deciding whether to accept
a new client is to
C a. Enable the CPA firm to attest to the reliability of the client
b. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients
Q. c. Minimize the likelihood of association with clients whose management lacks integrity
d. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed
59. When assessing the risk of material misstatements, auditors evaluate the reasonableness of an entity's
accounting estimates. An auditor normally is concerned about assumptions that are
A a. Susceptible to bias
b. Consistent with prior periods
R. c. Insensitive to variations
d. Similar to industry guidelines

END

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